Is IntranceLtd (TSE:3237) Using Debt Sensibly?

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Intrance Co.,Ltd. (TSE:3237) does have debt on its balance sheet. But the real question is whether this debt is making the company risky.

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What Risk Does Debt Bring?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

What Is IntranceLtd's Debt?

The image below, which you can click on for greater detail, shows that at September 2025 IntranceLtd had debt of JP¥264.0m, up from JP¥24.0m in one year. But on the other hand it also has JP¥531.0m in cash, leading to a JP¥267.0m net cash position.

A Look At IntranceLtd's Liabilities

We can see from the most recent balance sheet that IntranceLtd had liabilities of JP¥519.0m falling due within a year, and liabilities of JP¥86.0m due beyond that. Offsetting this, it had JP¥531.0m in cash and JP¥84.0m in receivables that were due within 12 months. So its total liabilities are just about perfectly matched by its shorter-term, liquid assets.

Having regard to IntranceLtd's size, it seems that its liquid assets are well balanced with its total liabilities. So while it's hard to imagine that the JP¥3.25b company is struggling for cash, we still think it's worth monitoring its balance sheet. Succinctly put, IntranceLtd boasts net cash, so it's fair to say it does not have a heavy debt load! The balance sheet is clearly the area to focus on when you are analysing debt. But you can't view debt in total isolation; since IntranceLtd will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

See our latest analysis for IntranceLtd

In the last year IntranceLtd wasn't profitable at an EBIT level, but managed to grow its revenue by 4.3%, to JP¥962m. That rate of growth is a bit slow for our taste, but it takes all types to make a world.

So How Risky Is IntranceLtd?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months IntranceLtd lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of JP¥407m and booked a JP¥474m accounting loss. However, it has net cash of JP¥267.0m, so it has a bit of time before it will need more capital. Overall, its balance sheet doesn't seem overly risky, at the moment, but we're always cautious until we see the positive free cash flow. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. We've identified 3 warning signs with IntranceLtd (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.